How To Trade in Commodities: A Beginner’s Guide

Commodities are an investable asset that many people don’t talk about these days. It may be due to the fact that they may be talking about the hottest stock or even cryptocurrency. While both assets are great to have in your portfolio, it never hurts to consider a bit more diversification.

This guide will show you how to trade in commodities. If you are a beginner, this will be the perfect time to learn about everything you need to know about trading these kinds of assets. You will learn the benefits and risks of commodities and how you can get started.

Ready to dive into the wonderful world of commodities? Let’s get started.

What are commodities?

Commodities are natural occurring goods and materials. They are often collected and used for human use. These include but are not limited to oil, precious metals, and even construction materials. 

Often, these raw materials will represent a part of our overall economy in certain ways. One commodity can be useful for energy purposes. Another can be used for food consumption.

A commodity is a material where it can be used to address a person’s needs - whether it’s voluntarily or involuntarily. In other words, oil is needed to keep homes warm and fuel vehicles.

Or sugar is used as it is a main ingredient in several different foods. Precious metals such as gold can be instrumental in creating fillings for dental patients with cavities. The list goes on.

With the ongoing demand of these commodities, it’s no secret that many people are investing in them to ensure they make a solid profit from it. Plus, they are traded at the same price despite the existence of several different producers creating and procuring these materials for the market. 

Where are commodities traded? 

Commodities are traded in the same manner as stocks - on an exchange. In the United States alone, there are two exchanges: the Chicago Mercantile Exchange (CME) and the New York Mercantile Exchange (NYMEX). The London Metal Exchange or LME is the only other one in the world.

What are the types of commodities that can be traded?

There are two types of commodities that can be traded: hard and soft commodities. Let’s give you a deeper definition of the two right now:

Hard commodities

These are materials that are often mined or extracted. The materials that fall under this category include oil, gold, copper, silver, and other precious metals. They will be used for various purposes including the production and manufacturing of goods, energy, and also the creation of currency among others.

Soft commodities

These types of soft commodities are often created in an agricultural setting. Which means they are grown and harvested. Major soft commodities include coffee, sugar, and wheat among others.

Soft commodities can also be raised as well - including cattle, chicken, and hogs. Typically, these will be used for the purpose of food consumption.

Getting started with commodities trading

If you have never traded commodities before, this guide will be helpful. Getting started can be a challenge at first since you’re trying to figure everything out. Which is why we provide the following tips on what you can do to get started:

Learn the basics of commodities markets and study market trends

One of the best actions to take is to learn the basics of the market. Get a good understanding of how it all works. This includes studying the basic market trends and the factors that go into influencing prices.

For example, a shortage in supply may lead to higher prices even if the demand is high. Learn about the possible factors that can lead to commodity prices going up or down. As a beginner, we don’t want to dump anything that is considered “advanced level”.

You can study up on technical analysis or chart patterns if you choose. But we prefer that you stick to the basic stuff for the time being. The good news is, depending on the platform, there are plenty of educational materials that will provide you with what you need to know to get an edge on commodity trading.

Choose a commodity trading platform

Next, you want to consider a trading platform that offers commodity trading. In today’s digital age, online platforms have grown in popularity. Before you choose one, you need to look over which features to consider.

To begin, find out if there is plenty of educational material. This will not only cover the basics of trading, but also more in-depth materials regarding commodity trading. You will learn how to stay ahead of the curve in a trading market that has a history of being volatile.

If you have any questions or concerns, having round the clock support can help. You can be able to reach out to someone by live chat, phone, and email - whichever is convenient for you. If you run into any issues, the trading platform can also be able to help remedy it in the best way possible.

Finally, the deposit amount might play a role in which platform you choose. Some platforms may offer low deposit amounts and others may not. It will need to be a good fit for your budget.

You can take advantage of certain deposit bonuses if you deposit a specific amount. This can be done if you have enough money. Otherwise, you can be able to start out with a small amount so you can test your trading skills.

Go steady and don’t take big risks

Finally, we stress that you should never take big risks since the idea of more money tends to dance in many of the heads of traders. Never trade more than you can afford to lose. As always, do your due diligence.

Doing due diligence will not only give you a better understanding of the commodities market, but it will also help you make more informed decisions.

Let PermuTrade help with your commodity trading journey

If you are considering the idea of trading commodities, PermuTrade will be the go-to place for you. You’ll get plenty of insight and advice on the commodity market including certain materials that might be flying under the radar. If you are interested in learning more about what PermuTrade can do on your commodity trading journey, be sure to contact us today.